Monday, March 2, 2009

Four years ago I decided to back-burner my independent consulting career and become a stay-at-home dad. I continue to do some consulting work, but it's only a handful of hours and it's at a reduced rate. At the time I was making north of $100k/yr doing Java/JEE work and traveling every week—in 2004 I was living in North Carolina and working in Arkansas. My wife works, so let's take a look at our tax situation.

First, assume (incorrectly) that my wife makes $65k/yr and I could bring home an additional $100k/yr. My wife's base salary puts us in the 25% bracket for married filing jointly, so every dollar I earn will be taxed at 25% or more. To keep things simple, let's pretend my income tax is only 25% or $25k. I'm self-employed, so I have to pay both sides of FICA which works out to about 15%. This would only apply to about $40k of my additional income (for 2008) or about $6k. My state income tax would add another $6k, so we're looking at taxes around $37k.

If I wasn't a stay-at-home dad, then we'd need to hire a nanny to take care of the girls. I think that would set us back about $25k/yr maybe more. That leaves us with $100k - $37k - $25k = $38k. Taking an active role raising your children... what's that worth? Obviously, it's worth more than $38k/yr to me. Yeah, the diapers suck, but seeing their first steps, hearing their first words, that stuff is priceless.

If you're Atlas and you'd like to shrug, have you ever wondered why it is that Europeans take so much vacation time? Part of the reason is that time-off is taxed at 0%. If you're negotiating your compensation then you should not only consider asking for more vacation time, but also a shorter work week—a four day work week is like a 20% raise. Of course, the workaholics are probably wondering what to do with three whole days off. Simple: protest, call your congresscritters, and lead us to a brighter future with lower taxes so you can get back to work!

PS: Watch for news stories about compensation packages having lower salaries with more generous vacation and/or flex time. Those companies have to "tighten their belts," but they'll want to "do right by their workers" and try to "maximize the number of employees they retain in these tough economic times." They're "switching to a four day work week to reduce their carbon footprint." That's what you'll read. Then take a gander at tax revenues. This will be an object lesson in the deficiencies of the progressive tax system. Trying to play catch-up by moving the goalposts from $250k to $150k to $50k will be fun to watch.